12. Urban Transport Policy: Colombia

12
Urban TransportPolicy: Colombia
Alvaro Pach6n
O
ur knowledge of urban transport in Colombia
ccomes in great part from transport and urban finance studies madeduringthe pastthirteen yearsin the
big cities and especiallyin Bogota. Discussionshave
centered on two main themes: public versus private
transport, and choices in public transport.
explainedby the high percentageof trips madeon public
transport and the low rate of private motorization (see
Pach6n1981c;Westin1980).Themain elementsofwhat
is known about collectivetransport in Colombiaare
summarizedbelow.
State Intervention in CollectiveTransport
The state has recognized collectivetransport as a
public service and a basic need. Inabilityto charge directly for road use leads to excessiveuse of private
vehiclesand inefficientuse of road space,and additional
inefficienciesare createdin a systemof freecompetition
whendriversdo not considerthe negativeeffectsoftheir
behavioron other vehicleson a congestedroad. Collective transport can reduce someof these problems.Asfor
transport as a basic need, under free competition, lowincomeconsumers may not be servedwhen the cost of
providingserviceis abovewhat theycan afford,and state
intervention may be warranted. Intervention may be
direct, through production or pricingof the basicneed,
or indirect, through income transfers. As high-income
classesseldomuse buses, direct interventionis likelyto
use less resources to meet the basic need objectiveand
hence is preferableto indirect intervention.
Operations
The less efficient use that private vehiclesmake of
road spaceand fuel per passengerhas been identifiedas
one of the causes of the transport problem (see World
Bank 1975, pp. 84-85; Urrutia 1981, pp. 12-13). To
improveresourceallocation,two kindsofmeasureshave
been suggested:taxes and subsidiesto shape the transport market, and quantitativerestrictionsto limituse of
the roads.
A proposalthat relies on market mechanismsis the
use ofa fuel tax to control urban congestion(Republicof
Colombia1973,pp. 99-111). McClure(1974)has proposed a parking tax. Although the government has not
acceptedeither proposal,it has adoptedsome measures
that clearlyfavorpublic over private transport, including sales and import tax exemptionsfor publictransport
vehicles,bus fares that are set belowaveragecost, and
lower fuel prices for commercialvehicles. The main
restriction designedto favor collectivetransport is the
prohibition of private vehicles on Carrera 10, one of
Bogota'sprincipalstreets. (In contrast, the local transport authority in Cali has set restrictions on bus access
to the traditional center.)
The considerable amount of investigationthat has
been devoted to the subject of collectivetransport is
Organizationof CollectiveTransport
There are two types of ownershipof collectivetransport firms: ownershipof the vehiclesby the municipal
government-the predominant arrangement in the
UnitedStates-and ownershipbyprivateorganizations,
as in Argentina,Brazil, Chile, and Colombia.Colombia
has a basic systemof affiliatingcompanieswhich coexist
145
146
Alvaro Pachon
with state transport companies and cooperatives. In
Bogota's system of affiliating companies the state
assigns the routes and givessome rights to the private
company.In some casesthe companyownssome of the
buses, but generallybus ownersaffiliatewith a company
which distributesthe routes and charges its associatesa
rolling charge foruse of its routes. The managersof this
type of organization are the strongest group in the
transport systembecausethey maintain a close relation
with the officialsector,through whichtheyobtain operating licensesand route authorizations.
In the state companies, the state administers and
owns the transport equipment, as in the case of the
Empresa Distrital de Buses de Bogota (District Bus
Companyof Bogota).This company's importance has
decreased;in 1980it accountedfor lessthan 1 percent of
public transport buses and busetas (minibuses).Cooperatives, which own their transport equipment, with
the associated drivers having shares, predominate in
some cities, such as Cali,and occupya second place in
others, including Bogota.
In 1980Bogotahad thirty-eightpublictransport companies,ofwhichtwelvewerecooperatives,onewasstateowned,and twenty-fivewere limitedliabilitycompanies
(affiliatingcompanies).In Caliin 1979there were 1,426
buses distributedamongsixteenprivatecompanieswith
forty-two routes and 181 busetas distributed among
three companieswith seven assignedroutes. There has
been considerabledebateabout the organizationof public transport. Defendersof a public collectivetransport
system have pointed out the inefficienciesin resource
allocation associatedwith the existing system in Colombia, while the defendersof the present system emphasize the low costs of private companies.In Leibenstein's terminology (1966), the defenders of a statal
system focuson efficientresourceallocation,while the
defenders of the present system focuson the inherent
X-efficiencyof private property. Interconsult Ltda.
(1970)and Urrutia(1981)havedocumentedthe existing
system's low operating costs, the good maintenance
levelof the vehicles,and the system'sabilityto adapt to
changes in the demand for transport. A 1980study by
the Administrative Department of District Planning
showsthe high levelsof X-inefficiency
of Bogota'spublic
company.Walters and Feibel(1980)and Urrutia(1981)
also show that in other parts of the world private companies have lower cost levels and are more X-efficient
than public companies.As an exception,Nelson(1972)
shows that in the UnitedStates in 1960and 1968public
companies had costs 10 percent lower than those of
private companies.
The inefficiencyof resource allocation, especiallyas
concerns congestion,has been documentedby, among
others, Interconsult Ltda. (1970) and Departamento
Nacionalde Planeaci6n-Instituto Nacionalde Transporte (INTRA)(1974). By means of a route simulation
model,these studies bring out the savings,in operating
costs, of a centralizedcollectivetransport system.
Economicevaluationof the twotypes of organization
requires a simultaneous analysis of the two types of
efficiencythat takes into account the variations state
ownershipintroducesin the operatingcosts and considers the benefitsand costs associatedwith trip duration
and waiting and transfer times. In addition, political
considerationsare relevant.Whichtype of organization
better promotes the satisfactionof basic needs?Which
type is more reliable and less affected by strikes?
(Althoughstrikesare prohibitedin governmentservices,
slowdownsare often used for the same purposes.)
TheRouteSystem
The route systems in Colombia and especiallyin
Bogota have been frequently studied. Cifuentes(1978)
notes that authorityto assign routes has been delegated
byINTRAto the mayoralofficesin the principalcities.The
resulting separationoffunctionshas madecontrolof the
public transport system more difficult.
To assignnew routes, or to extendexistingroutes, the
AdministrativeDepartment of Transit and Transportation (DATT) studies the potential demand and opens a
tender to assign the new route. The tender specifiesthe
number ofvehiclesrequired and the frequencyofservice
during peak and nonpeak hours. The assignment process has been much criticized.It has been arguedthat
the system does not respond to the real needs of the
populationbecausethe decisionsrespondto pressureby
the Juntas de Acci6n Comunal (community action
boards) of the districts and do not take into consideration the needsof the wholepopulation.It has alsobeen
argued that the prevailing system of routes and route
assignmentsproduces high levels of congestion in the
central area because all the companiesprefer to serve
areas where demand levels are high. The existenceof
parallel routes and the informationproblem causedby
the great number of routes havealso been criticized.To
remedy some of these problems the Interconsult Ltda.
and INTRAstudies proposed the consolidationof routes
on the basis of the results of a simulation model.
It has, however,alsobeenestablishedthat the existing
route assignment system in Colombiaproducesa network with wide coveragethat has adaptedto changesin
trip demandpatterns. The efficiencywith whichowners,
drivers, and users process the existing informationto
obtain a satisfactoryallocation has been noted.
Discussion of the route system in Bogota leads to
some importantconclusions.First,a seriesof incentives
is bringing about a satisfactorysolution. The urban
UrbanTransportPolicy:Colombia
transport market is processinga great deal of information at a low cost. If there were no externalities, the
result produced by the market would be the same as
would be obtained in a model for the whole transport
system. Second,giventhe existenceof such externalities
as congestionand buses' stoppingon demand,the present system of decentralized decisionmakingmay be
faulty.Third, since there is no chargefor road use in the
central area, the incomefrom scarceroad spaceis transferred to the private sector, probablyto the affiliating
companies.Fourth, although the existingdata allowthe
use of simulation models developedfor Colombia,it is
probablethat more effort is neededto collectand anaJyze data and to refine the models if their results are
needed to assign a route system. Fifth, to ensure good
serviceto areaswith difficulttopographicconditionsand
high operating costs, it is necessaryto specifydifferential fares or subsidiesfor routes that serve those areas.
Sixth,ifthe state establisheda feeforthe right to operate
routes that serve the central areas, resource allocation
could be improved and funds could be generated to
provide subsidized service to the low-incomedistricts
that have unfavorablecost conditions.
Public Service Vehicles
The initial investigationsby Interconsult Ltda. and
mNTRA
consideredit desirableto definethe technicalcharacteristicsthat wouldassure more efficientand comfortable service.It was thought that metropolitanbuseslike
those in the United States should be used and that the
school-bustypeofvehicleshouldbe takenout ofcirculation. The success that microbuses and busetas were
having at the end of the 1960s was acknowledged,
however, and was attributed to their greater speed,
privacy,and comfort.
In Colombiaas in other developingcountries it was
soonrecognizedthat althoughthe metropolitanbus had
favorable technical attributes, the system of school
buses, minibuses, microbuses, and collective taxis
offeredmany more advantages(seeOwen1973;Walters
1979).First, a smallvehicleallowsmore intensiveuse of
the most abundantfactor in developingcountries,labor,
and because the level of investment is lower,vehicles
are easier to obtain, more drivers can own their own
vehicles,and there are greater incentives to maintain
vehicles in good condition. Second, conditionson the
demand side make the use of low-capacityvehicles attractive:becausethe waitingandtraveltimes are shorter
and there are fewerstops, this typeofserviceis more like
that of a privatevehicleand is more attractiveto middleand high-incomegroups.Allthese argumentshave contributed to legitimizethe persistenceof diversevehicle
sizes.
147
To balance supply and demandfor urban transport,
the state has enunciated policieswhich are sometimes
contradictory.For example,it has establisheda financial
intermediary,the FinancialTransportationCorporation
(cF-r),with credit lines for financing body work and
chassisfor busesand busetas.This credit has been subsidized to stimulate investmentin public servicevehicles
and to facilitatethe purchase of vehiclesby the drivers.
The subsidy, which amounts to nearly a fifth of the
vehicle's value, has undoubtedlymade investment in
public vehiclesmore attractive.
The state alsowants to maintain an adequatetransport supplyand assure an adequateincomeyieldfornew
vehicles.Differentialfares were establishedduring the
late 1960s according to the age of the vehicle, with
higher fares fornewervehicles.Sincethis systemdid not
work,a differentialsubsidybyagewas tried.The existing
subsidy system does not fulfill the initial objectiveof
favoring investment in new buses.
Moreover,the governmenthas establisheda licenseknown in Bogota as a nota opci6n-for new public
service vehicles. This entry restriction has artificially
limitedthe sizeofthe vehiclestockand has createdsome
income for those who already own public servicevehicles. Also, because in some cities the procedure for
granting licensesis stricter forsmallvehicles,the mix of
vehicles in the stock is artificiallydistorted.
Remuneration of Drivers
The public companiespaydriversa monthlysalaryfor
a normal eight-hour day; the private companiespay a
commission according to the number of passengers
transported. The private companies' system has been
criticizedbecauseit maylead driversto competeto pick
up passengerswithout regard to trafficlaws.It has also
been pointed out that the driver is being exploitedand
has long working days and unfavorableworking conditions. The public companieshave also been criticized:
the fixed salary, which does not take into account the
number of trips or passengers,destroysthe incentiveto
pick up passengersand to maintain the vehiclein optimum condition.
The private system appears to decreasethe information costs required for efficientoperation.That is, since
the driver has an incentiveto pick up as many passengers as possible,less planning and monitoring are required to ensure that bus schedulesand operationsare
meeting passengers' needs. This does not mean that a
fixed salary scheme cannot establish information and
control systemsfor efficient operation.
The incidenceof the subsidy is often misunderstood.
The user obtains an economicbenefit from the lower
fare or better serviceeventhough the subsidyis givento
148
AlvaroPachon
the bus owners.The short-term effectis alsosometimes
confusedwith the long-term effect.In a systemwith no
restrictions on the entry of new buses, an excessive
subsidycan lead to large temporaryprofitsfor the vehicleowners.Free entry ensures,however,that in the long
term automotive stock will increase, the service level
will improve, and profits will become normal. Finally,
transfers are often confused with economic costs. A
transport subsidy is a transfer. Even though a subsidy
decreases consumer surplus-because resources are
being used at a higher value than what consumersare
willing to pay-a public transport subsidytends to correct the inefficientresource allocation caused by the
absence of a price system for use of road space.
The absence of empirical research on the economic
effectsof governmentintervention in the transport sector is beginning to be remedied. Pach6n (1981b)has
found that the effectof a transport subsidyis essentially
redistributional; the benefits reach mainly lowerincome households.The maintenanceof lowfuel prices
has also contributed to a better income distributionby
decreasing the buses' operating costs. A preferential
subsidy for bus users has fewerleakagesthan a general
subsidy for all public transport users. Further research
is needed to quantify the effectsof transport subsidies.
Faresand Subsidies
dispersionis the flat fare,not the subsidy,anddispersion
can be reduced by making the fare vary according to
distance traveled.
New versus Old Buses
Preferential treatment for more recent modelswas
initially provided through differentialfares by age of
vehicle and, more recently, through differentialsubsidiesby model.In October1980monthlysubsidieswere
42,812pesosfor 1974-and-latermodels,30,443pesosfor
1970-73 models, 26,687 pesos for 1965-69 models,
25,811 pesos for 1960-64 models,and 24,917pesos for
1959-and-earliermodels.The cFr alsofavorsthe financing of new vehicles in granting credit.
TheRationalefor DifferentialTreatment
Differentialfares and subsidiesby age are defendedas
a means of stimulating the demand for new domestically producedvehicles. Furthermore, if it is desirable
to augment the capitalstock rapidly,preferentialtreatment for new vehiclesis helpful.The operatingcosts of
vehicles of different ages can also be relevant: to the
extent that the operating cost of a new vehicle is less
than that of an oldvehicle,the formerwillbe used more
intensively.
While the managers press the government for increasesin fareswhenevertheyconsiderthat their investment yieldhas reached unsustainablylow levels,workers and studentsprotest whenbus faresare increased.In
an effort to lower costs to the public, the govemment
establishes a fare below the cost of service, maintains
low prices for gasoline and diesel fuel, controls the
prices of such inputs as tires, and establishessubsidized
credit lines through the crr. To guarantee an adequate
profit, it specifies a subsidy for bus owners and sets
unsubsidizedfares for means of public transport other
than buses.
Some operational parametershavebeen defined,and
an index of input costs is maintained that allowsthe
government and the bus owners to recognize when
periodic adjustments to public transport fares are
needed to reflect increases in costs. Thus, adjustments
were made in responseto increasesin world fuelprices.
There is great confusion, however,regarding the economic effectsof such measures.Transportsubsidiesare
sometimesblamedfor an exaggeratedurban dispersion,
but in a flat fare system,as in Bogota,the marginalcost
of a kilometer traveled is zero no matter what the fare,
and since decisions on residential location depend on
the marginal cost of transport, a transit subsidyhas no
effect on housing location. Thus, the cause of urban
There are also reasons for giving equal or similar
treatment to old and newvehicles.Only 7.5 percent of
the stock ofvehiclesin Bogotais less than two yearsold.
The high proportion of old vehicleswith lowercapital
costs offersdriversthe possibilityof owningvehiclesand
thus broadens the base of ownership.A balancedtreatment for used buses could be defended,since it promotes capital formation,widensto some degreeownership of the means of production, and allows people
whose opportunity cost of time is lower to maintain
older vehicles.
OperationalCosts, by Age of Vehicle
The Interconsult Ltda.study found no statistical differencein operatingcostsbetweennewand oldvehicles,
but since such variables as routes served, distance
traveled,and driverswere not isolated,more analysisis
needed. Merewitz(1977) cites two studies which show
that the operatingcosts ofa companyare independentof
the averageage of the fleet.As in the Interconsult Ltda.
study, the estimationprocedureand the data used have
limitations.
A regressionanalysisof costs and revenuein relation
to age has been carried out with the use of assumptions
for the estimation of operating costs by ranges of bus
Urban TransportPolicy: Colombia
models and data on the monthly operating costs for
differentbus modelsas estimatedfor October1980.'The
following relations were calculated with the use of
ordinary least squares.
(12-1)
In Y, = In Y0 + Ba
where Yis the variablewhosebehavioris to be analyzed,
a is the vehicle'sage, and In Y0andB are the function's
parameters.
The number of trips made,whichvariesinverselywith
age, influences the number of kilometerstraveled and
the monthlycost. To isolatethe effectof trips made, the
variablecost per kilometer (VCK)was calculatedand a
regressionwas run, with the followingresults.2
(12-2)
In VCK, = 27.925 + 0.0024+ a .
(4.807)
R2 = 0.9001
Although the VCK changes very little (it decreases 1
percent for everyfouryearsofage),the hypothesisthat it
is independentof age cannot be accepted becausethe
t-statistic value is greater than the critical value.
The results of monthly cost and revenueregressions
were as follows,where VC is variable cost, FC is fixed
cost, and ING is operating revenue. (Thesubsidyis not
counted as revenue.)
(12-3)
In VCa=11.3088- 0.01806+a
(8.37)
R = 0.9589
(12-4)
In FCa= 8.8097+ 0.02771+ a
(14.13)
(12-5)
Prices and Profitability
For usedvehiclesthe presentvalueoffuture incomeis
basic to the price determinationand in turn to evaluation of the effectsof fare and subsidypolicies.Theprice
pattern of buses by age is satisfactorilyapproximatedby
an exponential functional form for cars in Colombia
(Pach6n 1981a).Data on the value of the vehicleshave
recently been assembledby the Center for Economic
DevelopmentStudies (Centro de Estudiospara Desarrollo Econ6mico,CEDE) in Colombia,and these data are
used to estimate the followingform.
(12-6)
0.9852
In Pa,= In PO- b *a
wherePa is the price of a vehicleof agea. The resultsof
the regression are
In Pa = 14.3961- 0.06887a
(141.1)
(8.28)
R2 = 0.7742
20 degrees of freedom
Thet-valuesare in parentheses.
In INGa = 11.2157- 0.02167+ a
(6.65)
clusions. First, variations in the operating costs per
kilometerof buses of differentages are relativelysmall.
Second,becausethe monthly operating revenueby age
decreasesfaster than the monthlyvariablecosts by age,
older buses tend to be less competitive.Third, the number of monthly trips decreaseswith age-new buses
seem to be used more intensively.Fourth, additional
research is neededon the cost and incomestructure by
age of the vehicle,with the effectof such other variables
as route conditions,drivercharacteristics,and the make
of the vehicle isolated.
(12-7)
=
149
0.9365
The interpretation of the age variablecoefficientin a
R = 0.9365regression of the price logarithmagainst the age of the
The resultsshowthat both monthlycostand revenueare
vehicleis the yearlydepreciationrate. Accordingto the
negativelyaffectedbyage and that the coefficientof the
results given here, for each year of use the price of
age variable is statisticallydifferentfrom zero.Accordthe bus decreasesby slightly less than 7 percent. The
ing to these results, monthly income decreasesmore
valueobtainedin equation12-7is less than that used in
rapidlythan monthlyvariablecosts,and the intercept of
the cost studies made by the transit companies,which
the variable cost function is slightly greater than the
show a usefullife ofsevenyearsand a salvagevalueof 30
correspondingvalue of the income functions. Thus,
percent.3 Thusthe depreciationrates chosenin the studoperational revenue does not cover the variablecosts,
ies on definingthe farestend to producereal profitrates
and the gap between revenue and costs increases in
higher than those agreed on between the government
percentage terms as the vehiclegets older becauseinand the bus owners.
come decreasesfaster than costs.
The economicprofitabilityof usedvehiclesis affected
Table 12-1 presents results for each model between
by three sourcesofeconomicrent: depreciation(the loss
1959 and 1980. The adjusted values were calculated
in value owingto age), the opportunitycost (the moneusing equations 12-3, 12-4,and 12-5.To obtain capital
tary interest rate multiplied by the price of the good),
return, the estimated income and the subsidyreceived
and the appreciationof the goodbecauseof inflationand
were added and total costs were subtracted.
changes in relative prices. Givenestimates,by age, of
The evidenceon operating costssuggestsseveralcondepreciationand the price ofvehicles,a nominalprofit=
150
AlvaroPach6n
Table 12-1. Buses: Adjusted Costs, Estimated Incorne, and CapitalReturn, October1980
(pesos)
Model
Age
Estimated
variable
costsa
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
55.800
56.817
57,852
58.907
59.980
61.074
62.187
63.320
64.474
65.649
66.846
68.064
69.305
70.568
71.855
73.164
74.498
75.856
77.238
78.646
80.079
81.539
a. VCa= 81,539 [exp(- 0.0180a)]
b. Fir, = 6,698 [exp(- 0.0216a)l
c. INGa= 74.285lexp(- 0.0216a)]
Adjusted
variable
costsb
Total
costs
Estimated
income'
Subsidies
Capital
return
3.743
3.848
3.957
4.068
4.182
4.300
4.420
4.545
4.672
4.804
4.939
5.077
5.220
5.367
5.517
5.672
5.832
5.996
6.164
6.337
6.515
6.698
59.543
60.665
61.809
62.975
64.163
65.374
66.008
67.855
69.147
70.454
71.785
73.142
74.525
75.935
77.372
78.837
80.330
81.852
83.403
84.984
86.595
88.238
47.126
48.158
49.213
50.292
51.393
52.519
53.670
54.845
56.047
57.275
58.530
59.812
61.122
62.461
63.829
65.228
66.657
68.117
69.609
71.134
72.693
74.285
24.917
25.811
25.811
25.811
25.811
25.811
26.687
26.687
26.687
26.687
26.687
30.443
30.443
30.443
30.443
42.812
42.812
42.812
42.812
42.812
42.812
42.812
12.400
13.303
13.215
13.127
13.041
12.956
13.749
13.667
13.586
13.508
13.431
17.112
17.039
16.968
16.900
29.202
29.138
29.077
29.018
28.962
28.909
28.859
R2 = 0.9589
R2 = 0.9852
R2 = 0.9365
abilityrate can be establishedoncethe rate of increasein
bus prices is known. Estimated prices, capital return
(current revenueminus current cost), and profitability
yieldedby the calculation are presented in table 12-2.
The estimatedvalues are basedon regressionsin which
the only explanatoryvariable is the vehicle's age and
which thereforemay differ from real values.
The estimatedprofitability(ia) shownin table 12-2is
inversely related to age. This finding is quite unexpected. Under competitive conditions, profitability
might be consideredto be independentof age.A casual
observer,however,might expecthigher profitabilityfor
the new buses, since larger ownerstend to own newer
buses. Twopossibleexplanationsmay be offeredfor the
results in table 12-2. First, the differencecould be a
result ofan underestimationofthe operatingcostsof old
models. The maintenance costs of old vehiclesexclude
the value of the time of the driver,who often owns and
repairs the bus. Second, the differencecould be a consequence of an underestimation of the price of older
vehicles.Becausethe estimatedprices are calculatedon
the basis ofa regressionwhoseonly explanatoryvariable
is the vehicle's age, these prices cannot capture the
distortions caused by the subsidy and thereby tend to
underestimate cases in which the subsidy is unneces-
sarily high. As this occurs for the older buses, the adjusted prices underestimatethe pricesof the older vehicles and consequentlyoverstate their profitability.
To show that many of the distortions in prices and
profitabilityare a result of the subsidies,data for busetas, which are not subsidized,were used.Withthe use of
the buseta price data from the CEDEsurvey,an exponential function was estimated:
In Pa = 14.0933- 0.06943*a
(12-8)
(8.63)
(141.1)
(
R2 - 0.8515
(
14 degrees of freedom
In table 12-3the buseta's profitabilityis nearly the same
for 1970-and-latermodels;for previousmodels profitability decreases with age. Thus, in the absence of a
subsidy the estimated profitabilityis more in line with
an expectationthat profitabilityis independentof age.
Buses or Busetas?
Govemmentpolicyappearsto havefavoredbusetas,as
is reflected in their rapid growth. Between 1971 and
1976the number of buses is estimatedto havegrownby
Urban Transport Policy: Colombia
151
Table 12-2. Buses:Prices,CapitalReturn, andProfitability
(pesos)
a.
Model
Age
Price
in 1980
Estimated
Capital
pricea
retumb
Profitability'
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
200,000
540,000
640,000
656,000
666,000
600,000
635,000
109,000
650,000
719,000
650,000
894,000
893,000
733,000
1,100,000
1,400,000
1,342,000
1,382,000
1,480,000
1,475,000
1,617,000
1,933,000
420,759
450,758
482,896
517,325
554,209
593,723
636,053
681,402
729,985
782,031
837,788
897,520
961,511
1,030,064
1,103,505
1,182,182
1,266,469
1,356,765
1,453,499
1,557,130
1,668,149
1,787,084
12,499
13,303
13,215
13,127
13,041
12,956
13,749
13,667
13,586
13,508
13,431
17,112
17,039
16,968
16,900
29,202
29,138
29,077
29,018
28,962
28,909
28,859
44.15
43.92
41.34
38.96
36.74
34.69
34.44
32.57
30.84
29.23
27.74
31.38
29.77
28.27
26.88
38.15
36.11
34.22
33.33
30.82
29.30
27.88
PO = 1,787,084[exp(0.0688a)1
InP, = In P0 14.391- 0.06887a
(141.10) (8.28)
R2 = 0.7742
where depreciation(a) = 6.9 percent.
b. Capitalreturn (RK) = income - costs.
c. AssumingthatRKa= (a + i±- ar)Pa,
thenia = (RRKaPa)
- a + Tr,wherei
4 isprofitability,a = 6.9 percent(seeequation12-8),and r = 15.41
percent.
Source: 1980 prices:Jaramillo (1981).
2.6 percent annually;forbusetas in urbanareas the rate
was 30 percent. Between 1971 and 1980 the average
growth rates were 6.2 percent for the bus stock in Bogota and 25 percent for the buseta stock; in Cali the
growth rates were 2.4 percent for buses and 21.93 percent for busetas.
Walters(1979)has indicatedthat in developingcountries minibuses are more efficient than buses with respect to costs,waitingtime, and trip frequency.Pach6n
(1981c)concludesthat the demandfor busetasincreases
with income. Furthermore the income elasticities of
demand forbusetas basedon time seriesare higher than
those obtainedfrom cross-sections(seePach6n 1981b).
During the period considered, the number of microbuses, which are smaller than busetas, decreased.
Profitabilityof BusesandBusetas
For 1967-and-latermodels, the busetas' profitability
is higher than that of busesof the sameage.4 This implies
that policies regarding public transport fares and subsidies favor intermediate-sizevehicles. This, together
with the preferencefor these vehicleson the demand
side, explainstheir rapid growth in Colombia.
The difference in the profitability of each type of
vehicle not only is consistent with the rapid growth of
the buseta stock but also reflects restrictions on the
additionof busetasto the stock. If there were no restrictions, the profitabilityof both typesof vehiclescould be
expectedto be equalized.Asmentionedabove,a license,
or nota opci6n, is required before a vehicle can be
affiliatedto a transport company. To the extent that
obtaining this license is more difficultfor busetas than
for buses, a higher profitabilityfor busetas is ensured.
Data on the prices of used vehiclesconfirm the existence of greater restrictions on the entry of busetas.
Automotivevehiclesshowrapid depreciationin the first
year and a constant rate of depreciationfor the remaining useful years (see Wykoff1970, pp. 171-72). With
such a pattern the adjusted value based on the regression would be less than the value chargedbythe distributor, since the owner of the vehiclehas to pay a penalty
to take the vehicle from the distributor. When, on the
contrary, there are supplyrestrictionsit is to be expected
152
AlvaroPach6n
Table 12-3. Busetas: CapitalReturn and Profitability
(pesos)
Estimated
pricea
Capital
retumb
Profitability'
n.a.
307,202
3,588
23.65
n.a.
n.a.
329,289
352,965
4,326
5,098
25.40
26.97
18
17
16
n.a.
n.a.
n.a.
378,343
405,545
434,703
5.906
6,752
7,636
28.37
29.61
30.72
15
14
13
12
11
10
9
8
7
6
5
4
566,000
624,000
475,000
550,000
495,000
678,000
605,000
789,000
650,000
900,000
965,000
994,000
465,958
499,459
535,370
573,862
615,122
659,349
706,755
757,570
812,038
870,423
933,005
1,000,087
8,560
9,526
10,535
11,580
12,688
13,836
15,034
16,283
17,585
18,944
20,359
21,834
31.68
32.52
33.25
33.87
34.39
34.82
35.16
35.43
35.62
35.75
35.82
35.83
1,071,992
23,370
35.80
1,149,067
1,231,684
1,320,240
24,971
26,637
28,372
35.71
35.59
35.42
Model
Age
1959
21
1960
1961
20
19
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
Price
in 1980
1977
3
n.a.
1978
1979
1980
2
1
0
1,375,000
1,321,000
1,270,000
n.a. Not available.
a. Pa= 1,320,240lexp(-0.0694a)]
In Pa= 14.0933- 0.06943a
R2 = 0.8515
(141.10) (8.63)
where depreciation(a) = 6.9 percent.
b. Capitalreturn (RK) = income - costs.
- a + 7r,
wherei4is profitability,a 6.9 percent (seeequation12-8),and iT = 16.54
c. AssumingthatRK, = (a + ia - ir)P0, then ia= (RKa/Pa)
percent.
Source: 1980prices:Jaramillo (1981).
that the owner willobtain a bonus for taking the vehicle
from the distributor. In the first casethe adjusted price
(using the regression)will be less than the list price; in
the second case the adjusted price will be greater than
the list price. Ifthe relation betweenthe estimatedprice
and the list price is defined as a premium factor, the
degree of restriction in the market can be inferredbecause the bigger is the premiumfactor,the higher is the
degree of restriction in the market.
For Bogota in 1980 the bus premium factor, Bb, is
1.02; the premium factor for the buseta, Bbt, is 1.28.
Bothvehiclesreceivea bonus for leavingthe distributor.
This factor, for both buses and busetas,tells us that the
government,through INTRA,still imposessevererestrictions, in relation to the demandfor publictransport, on
the entry of these vehiclesto the stock. In the case of
busetas the restriction is even clearer, which is in
accordancewith their high profitability,and the supply
of this mode should be even higher to obtain equilibrium between supply and demand.
If the rapid growth of the buseta stock is seen in
perspective, it can be inferred that in the beginning
there were more restrictionson the entry of busetasand
that the gap between the profit rates for buses and
busetas was larger. Kozel(1981)has shown that supply
restrictions decreased during 1972-78. Essentially,
busetas havebeen allowedto operateon the same routes
as buses, and a greater adjustment of the buseta supply
has been facilitated.
The Load Factor
From the point of viewof economicefficiency,where
there are differenttypes of transport vehiclesthe equipment should be assignedin order of efficiency,with the
most efficientassignedfirst. The most efficientvehicles
would be expectedto work all dayand the least efficient
only during peak hours. Where there are two types of
equipment with different fares, assignment would
generallybe in order of increasingbreak-evenloadfac-
Urban TransportPolicy: Colombia
tors: the equipment with the lowest break-evenload
factor would be assignedfirstand that with the highest
break-even load factor last. Such an operating rule
causesthe vehiclewith the lowestbreak-evenloadfactor
also to have the lowest observedload factor.
In Colombia,since the bus owner receivesa monthly
subsidy and the buseta owner receivesno subsidy,the
5 In
buseta's break-even load factor should be lower.
consequencethe buseta would tend to be used during
both peak and nonpeakhours and to havea lowerload
factor.
With the use of assumptionsfor calculatingthe bus
and buseta loadfactorsin Bogota,and cost datafor some
periods when fares were changed, the effectof these
changes on the break-evenloadfactorscan be seen. For
example,the bus break-evenloadfactor increasedfrom
April 1978 to May 1980, which reflected the slower
increase in fares than in variable costs. Afterthe most
recent fare increasestudied, in October1980,the breakeven load factor decreased, since fares had increased
more than costs. It can be inferredthat the use of buses
had been decreasing between April 1978and October
1980, perhaps because the use of busetas increased.
The resultsshow the dilemmabetweenefficiencyand
equitywhich the governmentconfrontsin fixingfares.If
the government wants to decrease the impact of the
growthof operating costsby moderatingthe increasein
fares and increasing the subsidy, the result may be
stimulationof the use ofvehiclesthat occupymore road
space and that consume more fuel per passengertransported.
It can alsobe seenthat although the loadfactor forthe
buseta increasedbetween Mayand October1980,there
is a great differencebetweenbus and busetaloadfactors.
Whereas a bus must fill 78.5 percent of its capacity
to cover its operatingcosts,the buseta needsto fillonly
43.2 percent of its capacity.This great differencein load
factorsexplainswhya bus ownerprefersto waitfor peak
hours to operate his bus. Only during those hours is
there enough demandto guaranteethat operatingcosts
will be coveredand a profit made. The buseta, in contrast, can operateon routeswith lowdemandand during
nonpeakhours becauseit needsto use only43.2 percent
of its capacityto coverits costs.This lowfactor suggests
that the buseta's trip frequencywill be greater than that
of the bus becauseit doesnot haveto wait forpeakhours
to operate profitably.
If we compare the observedload factor with the required load factor as in the table below,we findthat the
load factorfor the bus is too lowto coveroperatingcosts,
while that of the buseta is distinctlyabove the breakeven load factor. This result tells us that the buses are
incurring losses or that their operatingcosts have been
overestimated.
Vehicle
153
ObservedloadfactorBreak-even
loadfactor
(percent)
(percent)
Bus
69
78.5
Buseta
66
43.2
The resultsobtainedin this section showthat the fare
and subsidypoliciesencouragea more intensiveuse of
busetas,whichfavorsthe busetasupplyin both the short
and the long run.
Summary and Conclusions
In Colombiathe state has tried to favor public over
private transport. Giventhe absenceof policies-other
than the subsidyfor buses-to remedythe externalities
of private transport through the price system,it maybe
necessaryto increasethe use ofquantitativerestrictions.
For example,some lanes may be dedicatedto the exclusive use of public transport. Simultaneouslywith these
quantitative restrictions, other policies that use the
price system to discourage the use of private vehicles
shouldbe investigated.The proposalsfora fueltax and a
parking tax to reduce congestion should be studied
further. In addition, the possibilityof establishing a
license for accessto the central zones, as in Singapore,
should be examined.
The combinedeffectof the bus subsidy,the implicit
fuel subsidy,and the vehicletax has been to favor the
lower-incomeclasses.But since the private companies
havemuch lower operatingcosts than doesthe district
government company, it is probable that increases in
allocationalefficiencyattained from a system with all
government vehicles would increase operating costs.
The route assignment process is flexibleand has been
able to adapt itself to changes in the location of activities.
Such problemsof public transport as slowoperating
speed can be eliminated by such measures as establishing posted bus stops on all lines, reserving some
roads for exclusiveuse by public transport, and charging, by tender, for the use of roadsdedicatedexclusively
to public transport.
The credit establishedbythe cFr has madeinvestment
in public service vehicles easier. The availability of
credit, together with the fare and subsidyscheme,has
assured an adequate profit rate for investmentin different typesof vehicles.The driver's remuneration system
creates incentivesfor the efficientoperationof the vehicles but can also contribute to trafficcontrol problems.
As has been proved in Cali, the authorities can make
substantial improvementsthrough campaignsdirected
at users.
The elaborate system for setting fares and subsidies
has been describedabove.The adoption of a methodol-
154
AlvaroPach6n
ogy to calculatea transport cost index and the periodic
collectionof the required data havepermitted relatively
frequent adjustments that have maintained adequate
profits for the investment in public transport vehicles
despite inflationand changesin fuel prices.Theflat fare
scheme was identifiedas a possiblecause of excessive
urban dispersion.It was shownthat the subsidypolicies
unnecessarilyincreasethe priceof old vehiclesand artificiallyraise the prices of modelsat the lowerend of the
range to which the subsidyapplies.It was further shown
that fare and subsidypoliciesfavorinvestment in busetas and a more intensive use of these vehicles. The
restrictions on the entry of busetas into the stock in
1980were greater than wasthe casefor buses,and it was
noted that this fact is compatiblewith a decrease in
restrictions for buseta entry during 1972-78.
The results of the research on the economiceffectsof
the fare and subsidypolicieslead to the conclusionthat
the present scheme is causing distortions in the supply
of transport vehicles. Somesimple reforms of the subsidy scheme could eliminate the distortions and at the
same time solve other problems.A first proposal is to
change the basis for the subsidyfrom model to age, to
avoid the model effect and the price distortion of old
vehicles.Thesameprofit rate wouldbe adoptedforbuses
and busetas.As in the present system,only buseswould
be subsidized.
In this analysisthe valuesfor buses and busetaswere
calculated.In both casesa 40 percent annual profit rate
in monetary terms was fixed.The bus fare coversoperating costs, and the subsidycoverscapitaland fixedcosts.
Givena 40 percent profit rate, a uniform farefora bus of
any age is 3.50 pesos. The present subsidy is unnecessarilyhigh for olderbuses. It is possibleto fixa flat fareof
7.80 pesos for busetas, a little higher than the present
fare (7.50 pesos),to ensure a nominal profit rate of 40
percent, equal to that of buses.
A second reform would allow additional benefits.
There is a desire in Colombiato maintain the price of
fuel used by public transport belowthat of fuel used by
privatetransport.Theauthorities havewantedto change
all the public stock to diesel andto maintain low prices
forthat fuel,but this policyhas not had much success.A
possible measure is a subsidy that is related to the
averagefuel consumptionfor each type of vehicleused
in public transport. If the proposalto adopt a subsidy
scheme that would eliminate some of the distortions
created by the present scheme is accepted,additional
research on the vehicle'scosts,income,and pricebyage
will be needed.A better level of informationwould permit subsidiesto be basedon the costsof differentagesof
vehicleswithout incurring serious distortions.
Along with improvements in the definitionof fares
and subsidies, market forces should be permitted to
reduce the distortions from information problems or
methodologicallimitations. For example,by eliminatingrestrictions on the entry of publictransport vehicles,
the same profitabilitywould be ensured for all typesof
vehicles,and transport would be as profitableas other
sectors of the economy.Similarly,some fares, such as
night service charges, could be freed from controls.
Considerable knowledge exists concerning urban
transport in Colombia,and the use ofmodelsto simulate
routes is fairlywell established.Governmenttransport
policies have been, in general, in the right direction.
Policieshavesought to givepriority to publictransport
and have, by and large, favoredlower-incomeclasses.
Notes
1. Theinformationon costsmaybe overestimated
because
of the nature of the data and their relationto fares.The
FEDESARROLLO
(Urrutia1981)studyusedthe operatingcostsof
its busesandobtainedloweroperatingcosts.
2. Thet-valuesarein parentheses,
thereare threedegreesof
freedom,andthe criticalt-valueforthreedegreesoffreedomis
3.182.
3. Thet-valueto provethehypothesis
b = 0.1is 2.846.Itis
greaterthan the criticalvalue2.086with a 95percentconfidenceleveland20 degreesof freedom.
4. Theprofitability
ofbusescanbelessthanthatobserved
to
the extentthattherearedelaysinthe paymentofthesubsidyby
the cFT, the entityin chargeof the payment.
5. The busetaownermust coverboth variableand fixed
costsfromfares,whilethebusownercovershiscostsoutofthe
subsidyand the fares.The busetaownerthereforeneedsa
lowerloadfactorto coverhisvariablecosts.
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